Implementing New CDD Rules for BSA Part I Legal Entities 2016

Transcription

1 Implementing New CDD Rules for BSA Part I Legal Entities 2016 The material used in this text has been drawn from sources believed to be reliable. Every effort has been made to assure the accuracy of the material; however, the accuracy of this information is not guaranteed. The laws are often changed without prior notice from the government. The publisher and the editor are not engaging in the practice of law or accounting. We are not responsible for the actions of your company's employees. 1 Overview Gettechnical Inc. 1

2 Adds two sections to BSA Regulations Beneficial Ownership and Appendix A Rules for Banks 3 Four Elements of CDD CIP Monitor Account Activity Legal Entities CIP 25% Beneficial Owners and Controlling Person Ask Transactional Questions to Risk Rate the Member 4 2

3 Explicit Requirements Explicit requirements in the anti-money laundering (AML) program for all covered financial institutions, in order to ensure clarity and consistency across sectors: (1) customer identification and verification, (2) beneficial ownership identification and verification, (3) understanding the nature and purpose of Member relationships to develop a Member risk profile, and (4) ongoing monitoring for reporting suspicious transactions and, on a risk-basis, maintaining and updating Member information. 5 Element One CIP (You can CIP the entity and signers or just the entity.) 6 3

4 (a) Account. For purposes of : (1) Account means a formal banking relationship established to provide or engage in services, dealings, or other financial transactions including a deposit account, a transaction or asset account, a credit account, or other extension of credit. Account also includes a relationship established to provide a safety deposit box or other safekeeping services, or cash management, custodian, and trust services. (2) Account does not include: (i) A product or service where a formal banking relationship is not established with a person, such as check-cashing, wire transfer, or sale of a check or money order; (ii) An account that the bank acquires through an acquisition, merger, purchase of assets, or assumption of liabilities; or (iii) An account opened for the purpose of participating in an employee benefit plan established under the Employee Retirement Income Security Act of Gettechnical Inc. 7 (c) Customer. For the purposes of : (1) Customer means: (i) A person that opens a new account; and (ii) An individual who opens a new account for: (A) An individual who lacks legal capacity, such as a minor; or (B) An entity that is not a legal person, such as a civic club. (2) Customer does not include: (i) A financial institution regulated by a Federal functional regulator or a bank regulated by a State bank regulator; (ii) A person described in (b)(2) through (b)(4); or (iii) A person that has an existing account with the bank, provided that the bank has a reasonable belief that it knows the true identity of the person. 8 4

5 Customer Identification Programs for banks, savings associations, credit unions, and certain non-federally regulated banks. (a) Customer Identification Program: minimum requirements (1) In general. A bank must implement a written Customer Identification Program (CIP) appropriate for its size and type of business that, at a minimum, includes each of the requirements of paragraphs (a)(1) through (5) of this section. If a bank is required to have an antimoney laundering compliance program under the regulations implementing 31 U.S.C. 5318(h), 12 U.S.C. 1818(s), or 12 U.S.C. 1786(q)(1), then the CIP must be a part of the anti-money laundering compliance program. Until such time as credit unions, private banks, and trust companies without a Federal functional regulator are subject to such a program, their CIPs must be approved by their boards of directors. Gettechnical Inc. 9 (2) Identity verification procedures. The CIP must include risk-based procedures for verifying the identity of each customer to the extent reasonable and practicable. The procedures must enable the bank to form a reasonable belief that it knows the true identity of each customer. These procedures must be based on the bank s assessment of the relevant risks, including those presented by the various types of accounts maintained by the bank, the various methods of opening accounts provided by the bank, the various types of identifying information available, and the bank s size, location, and customer base. At a minimum, these procedures must contain the elements described in this paragraph (a)(2). 10 5

6 (i) Customer information required (A) In general. The CIP must contain procedures for opening an account that specify the identifying information that will be obtained from each customer. Except as permitted by paragraphs (a)(2)(i)(b) and (C) of this section, the bank must obtain, at a minimum, the following information from the customer prior to opening an account: (1) Name; (2) Date of birth, for an individual; (3) Address, which shall be: (i) For an individual, a residential or business street address; Gettechnical Inc. 11 (ii) For an individual who does not have a residential or business street address, an Army Post Office (APO) or Fleet Post Office (FPO) box number, or the residential or business street address of next of kin or of another contact individual; or (iii) For a person other than an individual (such as a corporation, partnership, or trust), a principal place of business, local office, or other physical location; and Gettechnical Inc. 12 6

7 (4) Identification number, which shall be: (i) For a U.S. person, a taxpayer identification number; or (ii) For a non-u.s. person, one or more of the following: A taxpayer identification number; passport number and country of issuance; alien identification card number; or number and country of issuance of any other government-issued document evidencing nationality or residence and bearing a photograph or similar safeguard. Gettechnical Inc. 13 (A) Verification through documents. For a bank relying on documents, the CIP must contain procedures that set forth the documents that the bank will use. These documents may include: (1) For an individual, unexpired government-issued identification evidencing nationality or residence and bearing a photograph or similar safeguard, such as a driver s license or passport; and (2) For a person other than an individual (such as a corporation, partnership, or trust), documents showing the existence of the entity, such as certified articles of incorporation, a government-issued business license, a partnership agreement, or trust instrument. Gettechnical Inc. 14 7

8 (B) Verification through nondocumentary methods. For a bank relying on nondocumentary methods, the CIP must contain procedures that describe the nondocumentary methods the bank will use. (1) These methods may include contacting a customer; independently verifying the customer s identity through the comparison of information provided by the customer with information obtained from a consumer reporting agency, public database, or other source; checking references with other financial institutions; and obtaining a financial statement. (2) The bank s nondocumentary procedures must address situations where an individual is unable to present an unexpired government-issued identification document that bears a photograph or similar safeguard; the bank is not familiar with the documents presented; the account is opened without obtaining documents; the customer opens the account without appearing in person at the bank; and where the bank is otherwise presented with circumstances that increase the risk that the bank will be unable to verify the true identity of a customer through documents. Gettechnical Inc. 15 (3) Recordkeeping. The CIP must include procedures for making and maintaining a record of all information obtained under the procedures implementing paragraph (a) of this section. (i) Required records. At a minimum, the record must include: (A) All identifying information about a customer obtained under paragraph (a)(2)(i) of this section; (B) A description of any document that was relied on under paragraph (a)(2)(ii)(a) of this section noting the type of document, any identification number contained in the document, the place of issuance and, if any, the date of issuance and expiration date; (C) A description of the methods and the results of any measures undertaken to verify the identity of the customer under paragraph (a)(2)(ii)(b) or (C) of this section; and (D) A description of the Account Authorization of any substantive discrepancy discovered when verifying the identifying information obtained. (ii) Retention of records. The bank must retain the information in paragraph (a)(3)(i)(a) of this section for five years after the date the account is closed or, in the case of credit card accounts, five years after the account is closed or becomes dormant. The bank must retain the information in paragraphs (a)(3)(i)(b), (C), and (D) of this section for five years after the record is made. Gettechnical Inc. 16 8

9 Who do we CIP? Legal Entity Some financial institutions CIP Signers 25% Beneficial Owners Controlling Person 17 Current Customer Identification Program Information Name Address Date of Birth (on people) TIN (if non US other numbers can be used) Documentary Verification Nondocumentary Verification Resolve Discrepancies 18 9

10 Element Two CIP Beneficial Owners and Controlling Person Why is beneficial ownership important? 1. Assisting Financial Investigations by Law Enforcement. 2. Advancing Counterterrorism and Broader National Security Interests 3. Improving a Financial Institution s Ability to Assess and Mitigate Risk 4. Facilitating Tax Compliance 5. Promoting Clear and Consistent Expectations and Practice 6. Advancing Treasury s Broad Strategy to Enhance Financial Transparency of Legal Entities

11 Key points Covered financial institutions must identify and verify the identity of the beneficial owners of all legal entity Members (other than those that are excluded) at the time a new account is opened (other than accounts that are exempted). The financial institution may comply either by obtaining the required information on a standard certification form (Certification Form (Appendix A)) or by any other means that comply with the substantive requirements of this obligation. 21 The identification and verification procedures for beneficial owners are very similar to those for individual Members under a financial institution s customer identification program (CIP), except that for beneficial owners, the institution may rely on copies of identity documents. Financial institutions are required to maintain records of the beneficial ownership information they obtain, and may rely on another financial institution for the performance of these requirements, in each case to the same extent as under their CIP rule

12 Who is a covered financial institution? The term covered financial institution refers to: (i) banks; (ii) brokers or dealers in securities; (iii) mutual funds; and (iv) futures commission merchants and introducing brokers in commodities. 23 Exemptions to covered financial institution Activity Accounts Covered financial institutions are exempt from the requirements to identify and verify the identity of the beneficial owner(s) only to the extent the financial institution opens an account for a legal entity Member that is: At the point-of-sale to provide credit products, including commercial private label credit cards, solely for the purchase of retail goods and/or services at these retailers, up to a limit of $50,000; To finance the purchase of postage and for which payments are remitted directly by the financial institution to the provider of the postage products; To finance insurance premiums and for which payments are remitted directly by the financial institution to the insurance provider or broker; To finance the purchase or leasing of equipment and for which payments are remitted directly by the financial institution to the vendor or lessor of this equipment

13 Limitations on the activity exemptions (i) The exemptions do not apply to transaction accounts through which a legal entity Member can make payments to, or receive payments from, third parties. (ii) If there is the possibility of a cash refund on the account activity identified in this section, then beneficial ownership of the legal entity Member must be identified and verified by the financial institution as required by this section, either at the time of initial remittance, or at the time such refund occurs. 25 What is a legal entity? Legal entity customer means a corporation, limited liability company, or other entity that is created by the filing of a public document with a Secretary of State or similar office, a general partnership, and any similar entity formed under the laws of a foreign jurisdiction that opens an account

14 Not a legal entity customer A financial institution regulated by a Federal functional regulator or a bank regulated by a State bank regulator; An exempt person; 27 CTR Exemption Person 1-5 CIP Exemption Person 1-4 CDD Exemption Person 1-5 (b) Exempt person. For purposes of this section, an exempt person is: (1) A bank, to the extent of such bank s domestic operations; (2) A department or agency of the United States, of any State, or of any political subdivision of any State; (3) Any entity established under the laws of the United States, of any State, or of any political subdivision of any State, or under an interstate compact between two or more States, that exercises governmental authority on behalf of the United States or any such State or political subdivision; (4) Any entity, other than a bank, whose common stock or analogous equity interests are listed on the New York Stock Exchange or the American Stock Exchange or whose common stock or analogous equity interests have been designated as a NASDAQ National Market Security listed on the NASDAQ Stock Market (except stock or interests listed under the separate NASDAQ Capital Markets Companies heading), provided that, for purposes of this paragraph (b)(4), a person that is a financial institution, other than a bank, is an exempt person only to the extent of its domestic operations; (5) Any subsidiary, other than a bank, of any entity described in paragraph (b)(4) of this section (a listed entity ) that is organized under the laws of the United States or of any State and at least 51 percent of whose common stock or analogous equity interest is owned by the listed entity, provided that, for purposes of this paragraph (b)(5), a person that is a financial institution, other than a bank, is an exempt person only to the extent of its domestic operations; 28 14

15 + Not a legal entity continued An issuer of a class of securities registered under section 12 of the Securities Exchange Act of 1934 or that is required to file reports under section 15(d) of that Act; An investment company, as defined in section 3 of the Investment Company Act of 1940, that is registered with the Securities and Exchange Commission under that Act; An investment adviser, as defined in section 202(a)(11) of the Investment Advisers Act of 1940, that is registered with the Securities and Exchange Commission under that Act; An exchange or clearing agency, as defined in section 3 of the Securities Exchange Act of 1934, that is registered under section 6 or 17A of that Act; Any other entity registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934; A registered entity, commodity pool operator, commodity trading advisor, retail foreign exchange dealer, swap dealer, or major swap participant, each as defined in section 1a of the Commodity Exchange Act, that is registered with the Commodity Futures Trading Commission; 29 A public accounting firm registered under section 102 of the Sarbanes Oxley Act; A bank holding company, as defined in section 2 of the Bank Holding Company Act of 1956 (12 U.S.C. 1841) or savings and loan holding company, as defined in section 10(n) of the Home Owners Loan Act (12 U.S.C 1467a(n)); A pooled investment vehicle that is operated or advised by a financial institution excluded under paragraph (e)(2) of this section; An insurance company that is regulated by a State; A financial market utility designated by the Financial Stability Oversight Council under Title VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010; A foreign financial institution established in a jurisdiction where the regulator of such institution maintains beneficial ownership information regarding such institution; A non-u.s. governmental department, agency or political subdivision that engages only in governmental rather than commercial activities; and Any legal entity only to the extent that it opens a private banking account subject to of this chapter

16 The following legal entity customers are subject only to the control prong of the beneficial ownership requirement: A pooled investment vehicle that is operated or advised by a financial institution not excluded; and Any legal entity that is established as a nonprofit corporation or similar entity and has filed its organizational documents with the appropriate State authority as necessary. 31 Certification Form or similar format Identify and verify ID of beneficial owners. Can use standard form or something substantially similar Rely on Member Trust what Member says unless you have reason to suspect otherwise CIP for beneficial owners will be substantially similar to individuals but you may rely on copies 32 16

17 The Form 33 Who is a 25% beneficial owner? Each individual, if any, who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, owns 25 percent or more of the equity interests of a legal entity customer; and A single individual with significant responsibility to control, manage, or direct a legal entity customer, including: An executive officer or senior manager (e.g., a Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, Managing Member, General Partner, President, Vice President, or Treasurer); or Any other individual who regularly performs similar functions

18 What if the 25% beneficial owner is an trust or exempt entity? If a trust owns directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, 25 percent or more of the equity interests of a legal entity customer, the beneficial owner shall mean the trustee. If an entity owner is not a legal entity subject to this rule owns directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, 25 percent or more of the equity interests of a legal entity customer, no individual. 35 Do we have to use certification of beneficial ownership form? The financial institution may comply either by obtaining the required information on a standard certification form (Certification Form (Appendix A)) or by any other means that comply with the substantive requirements of this obligation

19 If we use the form is there a safe harbor? No 37 ABC LLC Four members Equal owners Trust CIP Trustee XYZ, LLC Single Member LLC Owned by Sally Jones CIP Sally Jones ABC, Inc Traded on Stock Exchange Exempt from CIP and CDD Beneficial Ownership Joe Smith CIP Joe Smith 38 19

20 Can we rely on what the Member says for beneficial ownership? The financial institution may rely on the beneficial ownership information supplied by the Member, provided that it has no knowledge of facts that would reasonably call into question the reliability of the information. 39 Do we use the same CIP on signers and beneficial owners? You do not have too. You can have two different requirements

21 For Example CIP for Signers Information: Name, Address, DOB and TIN Documents: Driver s License and Social Security Card Nondocument: Third party vendor and welcome letter CIP for Beneficial Owners Information: Name, Address, DOB and TIN Documents: Driver s License and Social Security Card Could be copy and not face to face 41 What is a new account for this section? Account has same definition as CIP New accounts for this section means each account opened at a covered financial institution by a legal entity customer on or after the applicability date

22 What about existing Members? Grandfathered until an event happens. Adding a new account to existing relationship. Something appears in monitoring 43 When a financial institution detects information (including a change in beneficial ownership information) about the Member in the course of its normal monitoring that is relevant to assessing or reevaluating the risk posed by the Member, it must update the Member information, including beneficial ownership information. Such information could include, e.g., a significant and unexplained change in the Member s activity, such as executing cross-border wire transfers for no apparent reason or a significant change in the volume of activity without explanation. It could also include information indicating a possible change in the Member s beneficial ownership, because such information could also be relevant to assessing the risk posed by the Member. This applies to all legal entity Members, including those existing on the Applicability Date

23 Obtain beneficial ownership Obtain beneficial ownership for legal entity Members New Member Existing Member adding a new account Existing Member with a triggering event 45 Existing Members Obtain beneficial information on existing legal entity Members when Add New Account to existing relationship Triggering Event Significant unexplained change in Member s activity Information indicating a possible change in beneficial ownership 46 23

24 Record Retention 47 Recordkeeping for beneficial ownership. A covered financial institution must establish procedures for making and maintaining a record of all information obtained under the procedures implementing identification and verification of beneficial owners. Required records. At a minimum the record must include: For identification, any identifying information obtained by the covered financial institution, including without limitation the certification (if obtained); (Keep five years after account closed) and For verification, a description of any document relied on (noting the type, any identification number, place of issuance and, if any, date of issuance and expiration), of any nondocumentary methods and the results of any measures undertaken, and of the Account Authorization of each substantive discrepancy. (Keep five years after account opened.) 48 24

25 Reliance on Another Financial Institution 49 Reliance on another financial institution A covered financial institution may rely on the performance by another financial institution (including an affiliate) of the requirements of this section with respect to any legal entity Member of the covered financial institution that is opening, or has opened, an account or has established a similar business relationship with the other financial institution to provide or engage in services, dealings, or other financial transactions, provided that: Such reliance is reasonable under the circumstances; The other financial institution is subject to a rule implementing 31 U.S.C. 5318(h) and is regulated by a Federal functional regulator; and The other financial institution enters into a contract requiring it to certify annually to the covered financial institution that it has implemented its anti-money laundering program, and that it will perform (or its agent will perform) the specified requirements of the covered financial institution s procedures to comply with the requirements of this section

26 Policy 51 Policy Two Components Explicit addition of the fifth pillar Beneficial Ownership 52 26

27 Part One Our financial institutions implements and maintains an anti-money laundering program that: Complies with the requirements of the Bank Secrecy Act Includes, at a minimum: A system of internal controls to assure ongoing compliance; Independent testing for compliance to be conducted by bank personnel or by an outside party; Designation of an individual or individuals responsible for coordinating and monitoring day-to-day compliance; Training for appropriate personnel; and Appropriate risk-based procedures for conducting ongoing customer due diligence, to include, but not be limited to: Understanding the nature and purpose of customer relationships for the purpose of developing a customer risk profile; and Conducting ongoing monitoring to maintain and update customer information and to identify and report suspicious transactions; and 53 Part Two Full Policy is in your handouts Legal Entities and Beneficial Ownership In general. Our policy is to identify and verify beneficial owners of legal entity customers and to include such procedures in their anti-money laundering compliance program required under 31 U.S.C. 5318(h) and its implementing regulations. Identification and verification. With respect to legal entity customers, we shall enable the institution to: Identify the beneficial owner(s) of each legal entity customer at the time a new account is opened, unless the customer is otherwise excluded. We may accomplish this either by obtaining a certification in the form of appendix A of this section from the individual opening the account on behalf of the legal entity customer, or by obtaining from the individual the information required by the form by another means, provided the individual certifies, to the best of the individual s knowledge, the accuracy of the information; and We will verify the identity of each beneficial owner, according to risk-based procedures to the extent reasonable and practicable. At a minimum, these procedures will contain the elements required for verifying the identity of customers that are individuals. Our institution may rely on the information supplied by the legal entity customer regarding the identity of its beneficial owner or owners, provided that it has no knowledge of facts that would reasonably call into question the reliability of such information

28 Procedures for Legal Entities Front House Procedures 55 Type of Legal Entity Sole Proprietor General Partnership Limited Liability Partnership Limited Partnership Limited Liability Limited Partnership Corporation for Profit Corporation Not for Profit Limited Liability Company Single Member Limited Liability Company Multiple Member Nonprofit clubs, organizations, tragedy accounts, benefit accounts Add Element Two ID Beneficial Owners an Controlling Person? No Yes Yes Yes Yes Yes Yes but only controlling person Yes Yes No Escrow Accounts No Trust Accounts No Public Funds No IOLTA No 1031 Exchange Accounts No Campaign Accounts No Estate Accounts No 56 28

29 SOLE PROPRIETORSHIP 57 To establish a sole proprietorship all an individual is required to do is to start conducting business for profit. There are no formal legal requirements for establishment. In most states these are owned by one person and cease at the death of that owner. Certainly the sole proprietorship can have other signers on the account

30 Requirements 1. Required Information on Entity: (Before opening account) Sole Proprietorship Name Address Date of Birth Taxpayer identification The account will use the Social Security number of owner or employer identification number of owner. 2. IRS Reporting: Report in SSN or EIN of owner 3. Documentary Requirements: Valid identification on sole proprietor (Reasonable time after My financial institution does/does not require opening) all signers to Complete CIP. County issued document such as Occupational license/trade Name The customer applies in the county where he or she is doing business. Account Authorization: Provided by the financial institution for sole proprietorships and signed by the owner of the business. There may be other signers on the account. These signers may be changed at any time by the owner. Account Card: Provided by the financial institution, signed by those authorized in the Account Authorization. It is the contract between the financial institution and the customer 59 Requirements 4. Suggested Nondocument Verification: (Reasonable time after opening) Sole Proprietorship A CIP program must also have nondocumentary verification. Suggestions include: Welcome letter Call to customer to thank for business Delivery of checks to location by account officer Third party verification Previous financial institution references 5. Account Styling: Joe Smith dba Floral Enterprises 6. Consult Government Lists: Section 326 List OFAC List 7. Insurance: A sole proprietorship is insured under individual coverage for a total of $250,

31 Account Authorization I, Joe Smith, am the sole owner of Floral Enterprises. I authorize the following to sign on the account: Joe Smith Owner Mary Smith Authorized Signer Usually a list of what they can and cannot do Signed Joe Smith, Owner Sample: Sole Proprietorship 1 OWNERSHIP Sole Proprietorship 2 TITLE Joe Smith dba Floral Enterprises 3 FEDERAL REGULATIONS 5 TAXPAYER IDENTIFICATION NUMBER Joe certifies SSN or EIN (EIN assigned to Joe personally either way Joe is first on title) 4 SIGNATURES (Access) Joe Smith Mary Smith 62 31

32 Checklist for Sole Proprietorship Required information on sole proprietorship Report in SSN or EIN of owner Valid identification on sole proprietor Occupational License from county/trade Name/Assumed Name Account Styling: Joe Smith dba Floral Enterprises Account Ownership: Sole Proprietor Nondocumentary verification Account Authorization Account Card Government Lists 63 3 Kinds of Partnerships in Most States General Partnerships Limited Liability Partnerships Limited Partnerships County or SOS SOS SOS May have Agreement Partnership Agreement Partnership Agreement EIN EIN EIN Account Authorization & Account Card Account Authorization & Account Card Account Authorization & Account Card 64 32

33 PARTNERSHIP: All three follow similar procedures although documents may be different The Uniform Partnership Act defines a partnership as an association of two or more persons to carry on a business as co-owners for profit. Partnerships are easily organized and may or may not have a formal partnership agreement. 65 Requirements Partnership 1. Required Information on Name Entity: Address (Before opening account) Taxpayer identification The account will use the employer identification number of the partnership. 2. IRS Reporting: Report in EIN of business 66 33

34 Requirements 3. Documentary Requirements: (Reasonable time after opening) Partnership Valid Identification on partner(s) opening the account. My financial institution does/does not require all signers to complete CIP Partnership Agreement: When it is available it is helpful to identify all the partners by a copy of the partnership agreement. The key issue to a partnership account is to make sure all partners sign the Account Authorization. Government Issued document at county or secretary of state (Domestic or Foreign) Certification of Beneficial Owner(s) Form and CIP of 25% owners and controlling person Account Authorization: Provided by the financial institution for partnerships and signed by the partners. There may be other signers on the account and may be changed at any time by all of the partners. A change in the account requires a new Account Authorization signed by all the partners. Account Card: Provided by the financial institution, signed by those authorized in the 67 Account Authorization. It is the contract between the financial institution and the customer Requirements Partnership 4. Suggested Nondocument A CIP program must also have nondocumentary Verification: verification. Suggestions include: (Reasonable time after Welcome letter opening) Call to customer to thank for business Delivery of checks to location by account officer Third party verification Previous financial institution references 5. Account Styling: Johnson Enterprises 6. Consult Government Lists: Section 326 List OFAC List 7. Insurance: A partnership is separately insured for $250,000 from the individual accounts of the partners. 8. Miscellaneous: No PODs on partnerships

35 Partnership Account Authorization Names the Partnership: Floral Enterprises Lists who can sign Joe Smith Mary Smith Betty Smith What their job is Partner Partner Authorized Signer Usually a list of what they can and cannot do Make deposits and Withdrawals Make loans Other Joe Smith Mary Smith Signed by all the partners unless there is a partnership agreement with a managing partner named. 69 Sample: Partnership 1 OWNERSHIP General Partnership 2 TITLE Floral Enterprises 3 FEDERAL REGULATIONS 5 TAXPAYER IDENTIFICATION NUMBER EIN of Partnership 4 SIGNATURES (Access) Joe Smith, Partner Mary Smith, Partner Betty Smith, Authorized Signer 70 35

36 Joe Smith Floral Enterprises Joe Smith 8/14/77 Mary Smith 9/15/ Main St Monroe LA xxxxx Main St Monroe, LA xxxxx Joe Smith 8/14/ Main St Monroe, LA Joe Smith Joe Smith 1/6/ Checklist for Partnership Required information on Entity Report in EIN of Partnership Valid identification on partner(s) opening the account Documentary verification County document or SOS document Nondocumentary verification Account Card Account Authorization Certification of Beneficial Owner(s) ) Form and CIP of 25% owners and controlling person Account Styling: Johnson Enterprises Government Lists Risk rate customer 72 36

37 CORPORATIONS For Profit 73 Corporations A corporation is formed when Articles of Incorporation are filed with the Secretary of State to approve the new business. Corporations doing business in more than one state must register as a "foreign corporation" in each state. The election of officers, usually contained in the minutes, is done at the first board meeting. The opening and closing of an account is authorized by the Board of Directors and carried out by the Corporate Secretary

38 Requirements 1. Required Information on Entity: (Before opening account) Corporations Name Address Taxpayer identification The account will use the employer identification number of the corporation. 2. IRS Reporting: Report in EIN of business 75 Requirements 3. Documentary Requirements: (Reasonable time after opening) Corporations Valid identification on corporate secretary My financial institution does/does not require all signers to Complete CIP. Domestic: Government issued document Foreign: Government issued document Fictitious Name: If the corporation is doing business under another name it must file a Certificate of Fictitious Name 76 38

39 Requirements 3. Con t Documentary Requirements: (Reasonable time after opening) 4. Suggested Nondocument Verification: (Reasonable time after Corporations Minutes from Board Meeting: The customer should provide an excerpt from the minutes of the last board meeting where officers were elected specifically the Secretary of the corporation since this person must sign the Account Authorization. Certification of Beneficial Owner(s) ) Form and CIP of 25% owners and controlling person Account Authorization: Provided by the financial institution signed by the secretary of the business. There may be other signers on the account. These signers may be changed at any time by the corporation, provided the corporation provides new minutes, new Account Authorization and new Account Card. Account Card: Provided by the financial institution signed by those authorized in the Account Authorization. It is the contract between the financial institution and the customer. A CIP program must also have nondocumentary verification. Suggestions include: Welcome letter 77 Requirements Corporations 5. Account Styling: Johnson Enterprises, Inc. 6. Consult Government Lists: Section 326 List OFAC List 7. Insurance: Each corporation is separately insured for $250, Miscellaneous: No ITF/PODs on Corporations

40 Account Authorization Be it resolved at the last meeting of Floral Enterprises, Inc on July 4, 2011 the board of directors the following was decided: All of these will sign on the corporate account: Joe Smith President and Secretary Mary Smith Vice President and Treasurer Usually a list of what they can and cannot do Make Deposits and withdrawals Make loans Other Signed Joe Smith, Corporate Secretary Attested to by another officer 79 Sample: Corporation 1 OWNERSHIP Corporation 2 TITLE Floral Enterprises Inc 3 FEDERAL REGULATIONS 5 TAXPAYER IDENTIFICATION NUMBER EIN of Corporation 4 SIGNATURES (Access) Joe Smith, Pres and Sec Mary Smith, VP and Treas 80 40

41 Joe Smith Floral Enterprises, Inc Joe Smith 08/14/ Main Street Monroe, LA xxxxx Mary Smith 09/15/ Main Street Monroe, LA xxxxx Joe Smith 08/14/ Main Street Monroe, LA xxxxx Joe Smith Joe Smith 01/06/ Checklist for Corporations Required information on Corporation Report to IRS in EIN of Business Valid identification on Corporate Secretary Document from Secretary of State Domestic: Government issued document Foreign: Government issued document Fictitious Name (If required) Minutes from Board meeting to determine Corporate Secretary Nondocumentary verification (should check with Secretary of State to see if in good standing) Account Card Account Authorization Certification of Beneficial Owner(s) ) Form and CIP of 25% owners and controlling person Account Styling: Johnson Enterprises, Inc. Government lists Risk Rate Customer 82 41

42 CORPORATIONS Not For Profit 83 Corporations A corporation is formed when Articles of Incorporation are filed with the Secretary of State to approve the new business. Corporations doing business in more than one state must register as a "foreign corporation" in each state. The election of officers, usually contained in the minutes, is done at the first board meeting. The opening and closing of an account is authorized by the Board of Directors and carried out by the Corporate Secretary

43 Requirements 1. Required Information on Entity: (Before opening account) Corporations Name Address Taxpayer identification The account will use the employer identification number of the corporation. 2. IRS Reporting: Report in EIN of business 85 Requirements 3. Documentary Requirements: (Reasonable time after opening) Corporations Valid identification on corporate secretary My financial institution does/does not require all signers to Complete CIP. Domestic: Government issued document Foreign: Government issued document Fictitious Name: If the corporation is doing business under another name it must file a Certificate of Fictitious Name 86 43

44 Requirements 3. Con t Documentary Requirements: (Reasonable time after opening) 4. Suggested Nondocument Verification: (Reasonable time after opening) Corporations Minutes from Board Meeting: The customer should provide an excerpt from the minutes of the last board meeting where officers were elected specifically the Secretary of the corporation since this person must sign the Account Authorization. Certification of Beneficial Owner(s) CIP Controlling Person only on form Account Authorization: Provided by the financial institution signed by the secretary of the business. There may be other signers on the account. These signers may be changed at any time by the corporation, provided the corporation provides new minutes, new Account Authorization and new Account Card. Account Card: Provided by the financial institution signed by those authorized in the Account Authorization. It is the contract between the financial institution and the customer. A CIP program must also have nondocumentary verification. Suggestions include: Welcome letter Call to customer to thank for business Delivery of checks to location by account officer Thi d t ifi ti 87 Requirements Corporations 5. Account Styling: Funds for the Homeless, Inc. 6. Consult Government Lists: Section 326 List OFAC List 7. Insurance: Each corporation is separately insured for $250, Miscellaneous: No ITF/PODs on Corporations

45 Account Authorization Be it resolved at the last meeting of Funds for the Homeless, Inc on July 4, 2011 the board of directors the following was decided: All of these will sign on the corporate account: Joe Smith President and Secretary Mary Smith Vice President and Treasurer Usually a list of what they can and cannot do Make Deposits and withdrawals Make loans Other Signed Joe Smith, Corporate Secretary Attested to by another officer 89 Sample: Corporation 1 OWNERSHIP Corporation 2 TITLE Funds for the Homeless Inc 3 FEDERAL REGULATIONS 5 TAXPAYER IDENTIFICATION NUMBER EIN of Corporation 4 SIGNATURES (Access) Joe Smith, Pres and Sec Mary Smith, VP and Treas 90 45

46 Joe Smith Funds for Homeless, Inc Joe Smith 08/14/ Main Street Monroe, LA xxxxx Joe Smith Joe Smith 01/06/ Checklist for Non profit Corporations Required information on Corporation Report to IRS in EIN of Business Valid identification on Corporate Secretary Document from Secretary of State Domestic: Government issued document Foreign: Government issued document Fictitious Name (If required) Minutes from Board meeting to determine Corporate Secretary Nondocumentary verification (should check with Secretary of State to see if in good standing) Account Card Account Authorization Certification of Beneficial Owner(s) ) Form and CIP controlling person Account Styling: Funds for Homeless, Inc. Government lists Risk Rate Customer 92 46

47 LIMITED LIABILITY COMPANY 93 Limited Liability Company (LLC) A limited liability company offers the owners limited liability like a corporation with a taxing structure similar to a partnership. The income is passed through to the owners of the business

48 Requirements 1. Required Information on Entity: (Before opening account) Limited Liability Company Name Address Taxpayer identification The account can use the Social Security number of owner if a one person LLC or employer identification number of the business. 2. IRS Reporting: Report in EIN of LLC or may use SSN of member if the LLC is one person. 95 Requirements 3. Documentary Requirements: (Reasonable time after opening) Limited Liability Company Valid identification on person opening the account My financial institution does/does not require all signers to Complete CIP. Operating Agreement, if any: Provided by the customer, the agreement between the members of the LLC. It usually names the managing member. Domestic: Government Issued Document Foreign: Government Issued Document Certification of Beneficial Owner(s) CIP 25% beneficial owners and controlling Person on form Account Authorization: Provided by financial institution and signed by managing member authorizing others in organization to sign on accounts. Account Card: Provided by financial institution; it is the contract between financial institution and customer

49 Requirements 4. Suggested Nondocument Verification: (Reasonable time after opening) Limited Liability Company A CIP program must also have nondocumentary verification. Suggestions include: Welcome letter Call to customer to thank for business Delivery of checks to location by account officer Third party verification Check with Secretary of State s Office 5. Account Styling: Name of business: Examples: Smith Electronics, LLC If a one person LLC using a Social Security number: Joe Smith Smith Electronics, LLC 6. Consult Government Lists: Section 326 List OFAC List 7. Insurance: $250,000 per LLC 8. Miscellaneous: No ITF/PODs on Limited Liability Companies May be a one person LLC May use a Social Security number 97 Limited Liability Company Account Authorization Names the Limited Liability Company: Floral Enterprises, LLC Lists who can sign Joe Smith Mary Smith Betty Smith What their job is Managing Member Member Authorized Signer Usually a list of what they can and cannot do Make deposits and Withdrawals Make loans Other Joe Smith, Managing Member Attested to by: Mary Smith, Member 98 49

50 Sample: Multiple Member LLC 1 OWNERSHIP Limited Liability Company 2 TITLE Floral Enterprises, LLC 3 FEDERAL REGULATIONS 5 TAXPAYER IDENTIFICATION NUMBER EIN of LLC 4 SIGNATURES (Access) Joe Smith, Managing member Mary Smith, Member Betty Smith, Authorized signer 99 Joe Smith Floral Enterprises, LLC Joe Smith 08/14/ Main Street Monroe, LA xxxxx Mary Smith 09/15/ Main Street Monroe, LA xxxxx Joe Smith 08/14/ Main Street Joe Smith Monroe, LA xxxxx Joe Smith 01/06/

51 Limited Liability Company Account Authorization Names the Limited Liability Company: Floral Enterprises, LLC Lists who can sign Joe Smith Mary Smith Betty Smith What their job is Managing Member Authorized Signer Authorized Signer Usually a list of what they can and cannot do Make deposits and Withdrawals Make loans Other Joe Smith, Managing Member 101 Sample: Single Member LLC 1 OWNERSHIP Limited Liability Company 2 TITLE Joe Smith Floral Enterprises, LLC 3 FEDERAL REGULATIONS 5 TAXPAYER IDENTIFICATION NUMBER SSN of Joe Smith 4 SIGNATURES (Access) Joe Smith, Managing member Mary Smith, Authorized signer Betty Smith, Authorized signer

52 Joe Smith Floral Enterprises, LLC Joe Smith 08/14/ Main Street Monroe, LA xxxxx Joe Smith 08/14/ Main Street Joe Smith Monroe, LA xxxxx Joe Smith 01/06/ Checklist for Limited Liability Company Required information on LLC Report to IRS in EIN (or SSN if one person LLC) Valid identification on managing member Operating Agreement, if any Documentation Domestic: Government Issued Document Foreign: Government Issued Document Account Styling: Smith Electronics, LLC OR Joe Smith, Smith Electronics, LLC Nondocumentary verification Certification of Beneficial Owner(s) CIP 25% beneficial owners and controlling person Account Authorization Account Card Government lists Risk Rate Customer

53 FORMAL NONPROFIT OR UNINCORPORATED ASSOCIATION 105 REQUIREMENTS FOR FORMAL NON PROFIT OR UNINCORPORATED ASSOCIATIONS Requirements 1. Required Information: (Before opening account) Formal Nonprofit Or Unincorporated Associations Name Address Taxpayer identification The account will use the employer identification number of the organization. 2. IRS Reporting: Report in EIN of Organization 3. Documentary Requirements: (Reasonable time after opening) Valid identification on person opening the account. Sometime financial institutions require identification on all signatories. My financial institution does/does not require all signers to complete CIP Charter, By laws provided by customer. Minutes of Meeting authorizing account opening

54 Requirements 3. Doc. Requirements (Continued) Formal Nonprofit Or Unincorporated Associations Financial Institution Provided Account Authorization Financial Institution Provided Account Card 4. Suggested nondocument verification: (Reasonable time after opening) A CIP program must also have nondocumentary verification. Suggestions include: Welcome letter Call to customer to thank for business Delivery of checks to location by account officer Third party verification Previous financial institution references 5. Account Styling: Name of organization. Examples: Rotary Lions Club Kiwanis 107 Requirements Formal Nonprofit Or Unincorporated Associations 6. Consult Government Lists: Section 326 List OFAC List 7. Insurance: $250,000 per Organization 8. Miscellaneous: Not for profit organizations may not have ITF/POD

55 Nonprofit Account Authorization Names the Nonprofit: Baton Rouge Rotary Lists who can sign Joe Smith Mary Smith Betty Jones What their job is President VP and Treasurer Secretary Usually a list of what they can and cannot do Make deposits and Withdrawals Make loans Other Betty Jones, Secretary Attested to by: Mary Smith, VP 109 Example of Formal Nonprofit Organization 1 OWNERSHIP Nonprofit 5 TAXPAYER IDENTIFICATION NUMBER EIN of Rotary 2 TITLE Rotary 3 FEDERAL REGULATIONS 4 SIGNATURES (Access) Joe Smith, Pres Mary Smith, Treas and VP Betty Jones, Sec

56 Checklist for Formal Nonprofit Association Required information on nonprofit association Valid identification on signers as required in your CIP Charter, By-laws Minutes Report to IRS in EIN of Association Account Styling: Rotary Account Ownership: Nonprofit Nondocumentary verification Account Authorization Account Card Government lists Risk rate customer 111 INFORMAL NONPROFIT OR UNINCORPORATED ASSOCIATION

57 REQUIREMENTS FOR INFORMAL NONPROFIT OR UNINCORPORATED ASSOCIATIONS Requirements 1. Required Information: (Before opening account) Informal Nonprofit Name Address Taxpayer identification The account will use the employer identification number of the organization. 2. IRS Reporting: Report in EIN of Organization 3. Documentary Requirements: (Reasonable time after opening) Valid identification on all persons opening the account, since there will be no outside documents, such as charters or by by laws Financial Institution Provided Account Authorization Financial Institution Provided Account Card 113 Requirements 4. Suggested nondocument verification: (Reasonable time after opening) Informal Nonprofit A CIP program must also have nondocument verification. Suggestions include: Welcome letter Call to customer to thank for business Delivery of checks to location by account officer Third party verification Previous financial institution references 5. Account Styling: Name of organization. Examples: Little League Flower Fund Hunting Club 1975 Class Reunion

58 Requirements 6. Consult Government Lists: Section 326 List OFAC List Informal Nonprofit 7. Insurance: $250,000 per Organization 8. Miscellaneous: Some small organizations will not have outside documents. You will have to identify all signatories if your financial institution decides to open these accounts. Do not set up as a personal account unless the SSN or the person on the account is signing and checks will be coming in made out personally to that person. 115 Nonprofit Account Authorization Names the nonprofit: 1975 High School Reunion Lists who can sign Joe Smith Mary Smith What their job is President Secretary Usually a list of what they can and cannot do Make deposits and Withdrawals Make loans Other Joe Smith, President Attested to by: Mary Smith, Secretary

59 Sample: Nonprofit 1 OWNERSHIP Nonprofit 2 TITLE 1975 High School Reunion 3 FEDERAL REGULATIONS 5 TAXPAYER IDENTIFICATION NUMBER EIN of High School Reunion 4 SIGNATURES (Access) Joe Smith Mary Smith Gettechnical Inc 117 Checklist for Informal Nonprofit Association Required information on nonprofit association Valid identification on all signatories Some financial institutions have customer write a Letter of Purpose Report to IRS in EIN of Association Account Styling: 1975 High School Reunion Account Ownership: Nonprofit Nondocumentary verification Account Authorization Account Card Government lists Risk Rate Customer

60 Mapping Multi-tiered Businesses 119 Mountain View LLC Lake Rentals Inc Owned by: Sally Smith Bill Smith 50/50 Lake Realty Inc Owned by: Sally Smith Stan Smith 50/50 Lake Shopping Inc Owned by: Sally Smith Stan Smith Bill Smith 33/33/

61 Do we have 25% beneficial owners? Control Person? 121 Element Three Understanding the nature and purpose of customer relationships to develop a customer risk profile

62 FinCEN stated under the existing requirement for financial institutions to report suspicious activity, they must file SARs on a transaction that, among other things, has no business or apparent lawful purpose or is not the sort in which the particular customer would normally be expected to engage 123 Banks specifically are expected to obtain information at account opening sufficient to develop an understanding of normal and expected activity for the customer s occupation or business operations

63 to understand the types of transactions in which a particular customer would normally be expected to engage necessarily requires an understanding of the nature and purpose of the customer relationship, which informs the baseline against which aberrant, suspicious transactions are identified 125 FinCEN stated In some circumstances an understanding of the nature and purpose of a customer relationship can also be developed by inherent or self-evident information about the product or customer type, such as the type of customer, the type of account opened, or the service or product offered, or other basic information about the customer, and such information may be sufficient to understand the nature and purpose of the relationship. FinCEN further noted that, depending on the facts and circumstances, other relevant facts could include basic information about the customer, such as annual income, net worth, domicile, or principal occupation or business, as well as, in the case of longstanding customers, the customer s history of activity

64 You are probably gathering info such as Purpose of Account Source of Funds Transactional Questions Special Sets of Questions MSBs MRBs Privately Held ATMs Third Party Payment Processors Embassy and Foreign Accounts 127 Transactional Questions Number of Deposits Number of Withdrawals ACH Wires International Purchase of Monetary Instruments POP Money Bill Pay

65 Do you have a base line? Do you risk rate members on transactions, type of business, purpose etc? What do you do with the risk rating? How is risk rating changed? 129 Worksheet Approach 2 in Handbook

66 Excel Approach 131 Best yet Build it in your system